contract

Posted by David Adelsteinon June 18, 2017Trial Perspectives /
Comments Off on Seller’s Remorse can have Consequences, Particularly when the Seller Acts in Bad Faith

Seller’s Remorse? We all have experienced buyer’s remorse in some fashion, but what about seller’s remorse? Perhaps talked about less than buyer’s remorse, but sellers can have regrets too. This, however, does not mean that a seller’s remorse can go consequence-free, particularly when the seller backs out of a deal or sabotages the deal because of seller’s remorse. For instance, what if a seller of real property signs a deal to sell her property and then realizes she could have gotten some more money for the same property? Can she simply back out of the deal or proactively prevent certain conditions from occurring that are required to consummate the transaction? Is this type of bad faith accepted?

Head v. Sorensen, 42 Fla. L. Weekly D1380 (Fla. 2d DCA 2017) is a case that touches on seller’s remorse in the context of a seller of a condominium unit backing out of a signed deal and undertaking efforts to prevent conditions from occurring required to consummate the transaction. The seller and buyer signed a purchase and sale contract for $405,000 with closing to occur 2 months later. A day or so later, the seller received a call from another owner in the condominium that told her that her sale price was too low and she could have gotten more money. Based on this call, the seller signed a cancellation of contract and sent it to the buyer. The buyer refused to sign the cancellation and indicated his intent to close on the unit.

The purchase and sale contract provided that the sale was conditioned on the condominium association’s approval. This is not an uncommon rider to a purchase and sale contract. The buyer filed his application with the association for the requisite approval. However, the seller, because she wanted the deal to die, contacted the association and told them that she did not want to go through with the transaction and there were legal issues that that might prevent closing from taking place (although she never explained what those legal issues were). She also told the association to investigate the buyer’s ability to pay costs associated with the condominium. The association then rejected the contract based on the purported low sales price prompting the buyer to sue claiming, among other counts, breach of contract and specific performance.

The seller argued that the condition to closing—the association’s approval—did not occur so the buyer could not close on the unit. The seller also creatively argued that the contract terminated by its own terms because there was a title defect (the association’s lack of approval) that rendered the title to the unit unmarketable and this defect was not cured. The title commitment / defect provision is standard in real estate contracts that allows the buyer to notify the seller prior to closing of any title defects; the seller then has time to cure the title defects. If the seller cannot cure the defects after reasonable diligent effort, the contract terminates.

While the contract and closing was conditioned on the association’s approval, the problem was that the seller proactively assisted the association’s rejection of the buyer and deal, or proactively ensured that the condition would not occur. Naturally, the buyer’s title commitment reflected the association’s approval as a closing condition. The seller certainly didn’t go out of her way to ensure the association would approve the sale, which a seller would typically do when they have a buyer in place and a relatively short closing time. Had the seller sold the sale to the association, or not actively hindered the association from approving the buyer and transaction, the association probably would have approved the deal and any title defect would be removed.

Surprisingly, based on these facts, the trial court granted summary judgment in favor of the seller. On appeal, the Second District reversed stating:

When there are questions of fact as to whether one party to a contract has acted in bad faith by helping to procure an event that would cause the contract to terminate, summary judgment in favor of that party is improper….Here, such questions do exist. Therefore, Sorensen [seller] was not entitled to summary judgment in her favor on the issue of whether the contract terminated under the condominium rider, and the trial court erred by entering final summary judgment….

***

To limit the buyer to just the return of his deposit creates an incentive for the seller to dishonor the contract: “This seems to us to come perilously close to arguing that the sellers, after entering into a solemn agreement, could glibly dishonor it and restrict the buyer to regaining what was in practical effect already his, inasmuch as the transaction was not consummated and the sellers were therefore not entitled to the money.”… Creating an incentive for a seller to breach the contract is anathema to the law.

Head, supra, (internal citations omitted).

Seller’s remorse has consequences, particularly when the seller proactively ensures conditions associated with the deal do not occur.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

Posted by David Adelsteinon November 17, 2016Appeal /
Comments Off on What Constitutes an Enforceable Contract?

An enforceable or valid contract requires an offer, acceptance of that offer, consideration, and sufficient specification of material terms. Jericho All-Weather Opportunity Fund, LP v. Pier Seventeen Marina, 41 Fla. L. Weekly D2565a (Fla. 4th DCA 2016). Whether a contract actually constitutes an enforceable contract is subject to a de novo standard of appellate review; this is the same appellate standard of review pertaining to an appeal of a trial court’s interpretation of a contract. See id.

The case in Jericho All-Weather Opportunity Fund exemplifies a party suing on the wrong contract and, thus, an appellate court reversing a judgment in favor of a plaintiff and remanding for the trial court to enter judgment in favor of the defendants. As you can imagine, this is a harsh outcome in an appeal – winning a trial only for the appellate court to reverse and mandate judgment for the party that lost during the trial.

In this case, the plaintiff (borrower) was seeking a construction loan. It entered into a second loan commitment with the defendant (lender) whereby the defendant agreed to loan the plaintiff money for the refinancing of property and constructing the project. The court explained that a loan commitment is “a lender’s binding promise to a borrower to lend a specified amount of money at a certain interest rate, usually within a specified period and for a specific purpose (such as buying real estate).” Jericho All-Weather Opportunity Fund, supra, quoting Armstrong Bus. Servs., Inc. v. AmSouth Bank, 817 So.2d 665, 673-74 (Ala. 2001).

The plaintiff and defendant then entered into a construction loan. The loan agreement was contingent on the actual closing of the loan—the closing of the loan was the consideration for the loan agreement. The loan agreement did not require the defendant to fund the loan as the agreement was predicated on the funding having occurred. However, the loan never closed and the plaintiff sued the defendant for breach of the loan agreement. The plaintiff prevailed at trial. The defendant appealed arguing that the loan agreement was not an enforceable contract as it never became a valid contract because the funding never occurred. The appellate court agreed stating that the plaintiff should have sued for breach of the second loan commitment and not the loan agreement. (Notably, the plaintiff had strategic reasons for not suing on the second loan commitment since it precluded the plaintiff from pursuing certain damages based on a waiver of consequential damages provision. Unfortunately, by not suing under the second loan commitment, the plaintiff did not sue on an enforceable contract.)

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.